Broker uses no-cost insurance plan to connect with clients

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Outshining a mortgage specialist can be as simple as offering a creative, ‘no-cost insurance plan,’ writes CMP Top 75 broker Dustan Woodhouse. In his own words, here’s one of his.

The following is a strategy that I’ve successfully offered to clients, and one very few mobile mortgage specialists or branch employees would even think to offer. The structure for this no-cost insurance plan creates a safety net for clients in that if they should ever need to, they can lower their payment with a simple e-mail or phone call. That’s without incurring any legal fees or mortgage penalties. The chief benefit for the broker is being able to take the edge off a client’s payments in situations of illness or job loss. You’ve got a no-cost, instant way to do that just because of the way you structured the mortgage at its inception.

 It should work with any lender that offers a match-a-payment/miss-a-payment program, although I tend to find that for a few other strategic reasons (relating to the sort of client who is in a position to pursue this) Scotiabank is the often best fit. 

So, first off familiarize yourself with Scotia’s match-a-payment/miss-a-payment program and then the client type who best fit the bill. He or she is typically above the age of 45, have less than 15 years to go on a mortgage, and are somewhat fiscally conservative.  In fact, in harmony with this profile, working with an independent mortgage broker may already be taking the client to the edge of their comfort zone, and it’s simply one more reason I tend to bring these clients back around to a “Big Bank.”

Here’s the meat of my ‘no-cost insurance plan:

On paper, we take what’s typically the 15-year amortization  back out to 30 years, and then we implement the match-a-payment option, doubling the baseline payment and putting the client back on track for the effective amortization they were after.  For every payment they double up, which is easily done as we created a false low payment, they are able to miss a payment.  Of course nobody ever plans to miss a payment, nor would you ever want to, however, this is like a sort of disability insurance policy that costs nothing at all to have.

Selling it

There is often initial resistance on the part of the client, concerned that they are somehow taking their mortgage back out to 30 years.  I ask the client to hear me out, though. 

I point out that there really is no downside other than for clients who opt for that lower payment and do not implement the double payment. That move is very unlikely for this type of client – if it were they would not be on track to be mortgage free in 15 years or less.

I present the following reasoning: “Mortgage payment and amortization have a symbiotic relationship, as you increase one, the other decreases, and vice versa.  With this plan you (the client) are in the driver’s seat.  Rather than being locked into a higher payment, you have effectively created a two- step buffer should anything in life change radically. And really via a simple e-mail or phone call they can:

  1. Reduce a monthly payment by about 50 per cent, simply by reverting back to the original amortization.
  2. Reduce a payment to zero for an equal length of time for which they have been making double payments ( within the term of the mortgage only, as the miss-a-payment option resets to zero at the start of each new mortgage term)

Another common theme within the applications of candidates for whom the strategy makes sense is they often have very low LTVs.  Thus there is an opportunity to utilize a HELOC product, potentially increasing the size of the file significantly.

Again, and this is something I point out specifically to these clients, a STEP or HELOC product is not for everyone.  Yet when we review the typical applicant’s profile, we see that one of the key reasons they have significant equity in the property is they are risk averse and thus debt averse.  They know how to manage their money, and more importantly they know how to manage their debt.  What is being presented to the client is simply a tool for them to use moving forward. That tool is access to the equity in their home – access which is increasingly more difficult to obtain. 

You might also incorporate into the conversation a few potential scenarios in which they may choose to access the equity: to top up an RRSP ( not so popular these days), invest in additional real estate, access down payment funds for recreational property, fund university educations for their children, assist their children with down payment monies for their own property purchases, etc. With those examples, you further capitalize on your value to the client.

Do not simply plan to get the client through this single transaction, do not be just an A-to-B solution.  Take some extra time and talk about the big picture, try to be an A-to-Z solution.

But before you take the next step and present it to a client, practice the dialogue with another broker, family member or whoever.  You need to be able to articulate all of this clearly and you will put yourself head and shoulders above the individual that your clients spoke with at their bank branch.

In fact, often the clients have dealt with branch representatives who failed to explain any of this. So, really, presenting these types of comprehensive mortgage strategies help to position you as the superstar you are!

 

  • Ron Butler on 2012-10-26 9:15:50 AM

    Dustan is an intelligent, creative broker who seems to come up with fresh, innovative ideas every month.
    I wish there were another 50 brokers like him. Heck, I wish I could come up with this many ideas.

  • Gary Mauris on 2012-10-26 5:42:39 PM

    Ron, I really admire your feedback on these forums. I do not always completely agree and that's the power of free speech. What I like most is you tackle the hard
    topics and are not influenced by others and you candidly speak your mind. Keep on doing what you are doing! And yes, Dustan Woodhouse is an incredibly bright guy who we can all learn so much from.

  • Danielle Spitters on 2014-04-03 8:52:10 PM

    I agree whole heartedly with this article. Thank you!!

    It makes clear as day sense for people to go with a longer amortization and give them selves stress free control over their monthly cash flow and mortgage.
    This will also reduce the habit of accumulating any future debt, as it really puts them in the drivers seat.

    It's are job to educate people to attain their goals.

  • Danielle Spitters on 2014-04-03 8:53:28 PM

    It's also OUR job to spell correctly... just caught my spelling error now....to late to fix!

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